The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas First yesterday confirmed it will cease writing auto insurance ‘cover notes’ this month, estimating that up to 30 per cent of Bahamian drivers “at any one point in time” are not properly insured.

Patrick Ward, the general insurance carrier’s president and chief executive, told Tribune Business it was targeting a mid-September start date and would imminently inform the Road Traffic Department of the policy change.

Explaining that manually written ‘cover notes’ would be replaced by electronically-issued full Certificates of Insurance, Mr Ward said the aim was to provide clients with “real time” documentation.

He reiterated that the initiative was also designed to eliminate the fraudulent use of ‘cover notes’ and the problems this created, disclosing that their had been an “uptick” in such cases since year-end 2012.

Disclosing that Bahamas First had conducted both a full internal review, plus consulted its agents and brokers, before implementing the new system, Mr Ward said the underwriter had “concluded we can exit the requirement to issue manual cover notes”.

He told Tribune Business: “We are going to cease issuing cover notes at a specific date in September, which we are going to notify the Road Traffic authorities about very shortly.”

Bahamas First has already tested its new electronic issuing process in-house, and with its agents, and Mr Ward added: “The initial indications are that the change we are going to put in place is going to be largely successful in dealing with the issues we’ve identified in the past.

“We’re replacing the manual cover notes with the actual policy certificate. One of the reasons manual cover notes were issued in the past was that our main system sometimes became inaccessible [to brokers and agents].

“We’ve come up with a backstop to that. It will be possible to come up with the issuance of the full certificate, which we would prefer.

“Our objective is to have all our motor policies issued in real time, and to the extent we can do that, there is no need for alternative documentation like a cover note.”

However, Tribune Business’s insurance sources said Bahamas First had been forced to modify its plans, as “there were certain problems” with the ‘cover note’ replacement strategy as initially proposed.

One source, speaking on condition of anonymity, expressed concern about how an electricity outage would impact the ability of agents and brokers to connect with the Bahamas First system.

And they added that the initial plan, for a six-month temporary Certificate of Insurance, would leave Bahamas First carrying a premium receivable for twice as long as a three-month cover note.

“Insurers are on the hook for six months,” they added.

Still, Mr Ward said all electronic Certificates of Insurance would carry a ‘water mark’ to identify them as authentic, much like a bank note.

This, and the elimination of manually written cover notes, is being viewed by Bahamas First as a major step in eliminating the fraudulent use of auto insurance cover notes.

Mr Ward said the ‘water mark’ would prevent the Certificates of Insurance from being “fraudulently replicated”.

He added: “The manual cover note is more easily replicated in a fraudulent way, and that is one of the main reasons for putting a stop to this.

“We want to prevent the fraudulent use of any documentation that has ‘Bahamas First’ on it. We’ve noticed in recent times an upswing in fraudulently-used cover notes in the marketplace.

“It’s been getting progressively worse from last year into this year. We’ve had any number of calls from the Road Traffic Department asking us to authenticate documents. There were some months when we were getting multiple calls on it.”

‘Cover notes’ have previously been issued to show that a vehicle owner has the required insurance coverage prior to the underwriter issuing the full Certificate of Insurance.

But with many ‘cover notes’ being written-up and issued manually, the Bahamian property and casualty industry has become increasingly concerned they were being manipulated by fraudsters, who simply blocked out the existing policyholder name and exchanged it for a new one,

This, in turn, enables unscrupulous vehicle sellers to claim they have insured the auto on the buyer’s behalf - a claim that is totally untrue.

The ‘cover note’ elimination will require a major ‘change in culture’ for numerous Bahamian auto insurance customers, who have become accustomed to visiting their agent/broker in the last few days before they have to take their vehicles through the Road Traffic Department inspection.

They cannot have their vehicles re-licensed without insurance, and typically obtain ‘cover notes’ as proof they have it.

However, Bahamian insurance brokers and agents have, in the past, told Tribune Business that clients often only pay just enough of the premium to obtain insurance coverage - and pass the Road Traffic Department inspection - then fail to pay the balance.

And the industry has seen ‘cover notes’ abused by its own employees. They have issued them to family members and friends, without any premium being paid or subsequent Certificate of Insurance issues.

Typically, the premium is only paid and/or policies issued once these same relatives/friends become involved in an auto accident.

Mr Ward told Tribune Business yesterday that this had helped create a situation where multiple Bahamian motorists were either totally uninsured or not properly covered.

In many instances, existing drivers were ‘not authorised’ to drive the vehicle they were using because they were not named on the policy document - meaning they were uninsured in the event of an accident.

And many others lacked a valid driver’s licence from the Road Traffic Department.

Asked how many Bahamian drivers lacked proper insurance coverage, Mr Ward told Tribune Business: “At this point our estimate continues to be in the range of 25-30 per cent at any one point in time.

“I think it’s a big industry issue, and something we have been grappling with for a long time. There’s a need for a proper vehicle registration process here, and if we had a proper online registration system, the police could tap into it from anywhere.”

Mr Ward added that there was “a lot of sympathy” from the Bahamian general insurance industry towards Bahamas First’s ‘cover note’ elimination plan.

“Having heard comments from colleagues in the marketplace, there’s the same level of concern with cover notes that we’ve expressed. I expect they’re going to be looking to mitigate any downside from their perspective.”